While the gold and silver markets yesterday recovered from their initial range-down moves, it would not appear as if the bear camp has relinquished control. In fact, the bear camp should be emboldened by today's headlines overnight that Chinese January through September gold consumption fell by nearly 10% relative to year-ago levels.
Certainly, a 4.9% decline in Chinese January through September gold output mitigates the decline in Chinese demand, but with demand roughly 3 times the level of production, the net influence of the Chinese supply and demand news is bearish to prices.
Given that Indian gold demand news at the beginning of the week was also discouraging, US pending home sales yesterday decreased economic uncertainty and given further hopeful trade headlines from the White House, the bear case in gold and silver looks to prevail.
It should also be noted that both Chinese and Indian sources alluded to high prices as a reason for slack demand and to us, that smacks of a situation where prices need to decline sharply to entice fresh demand. In fact, evidence of a bearish environment might be seen in the wake of today's widely anticipated US rate cut as that development is likely to pressure prices further as that move should lower economic concerns.
For some seeing gold and silver prices slide in the face of a rate cut might be a signal that the back of the bull case has been temporarily broken. Yet another minimal and largely psychological bearish development is seen from news that gold ETF's yesterday reduced holdings by 25,900 ounces as that hints at a break of a consistent investor inflow pattern.
It should be noted that silver ETF's also sold 1.43 million ounces of silver. As we have indicated in the recent past, the net spec and fund long in gold was burdensome at 328,083 contracts and without a sudden return of anxiety, we suspect gold will see a return to at least the mid-September low at $1,478.
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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
